NCUA Rethinks Corporate Too Big to Fail Policy

What a difference 10 months makes. That’s a prevailing thought in corporate credit union circles as executives digest the reports, unconfirmed by the NCUA, that two of the leading bidders for the failed Western Bridge corporate are Alloya (formerly Members United) and Catalyst (formerly Southwest Bridge plus Georgia Corporate).

This is because Scott Hunt, the NCUA’s corporates chief, in February issued a memo that put the agency firmly on record as opposing too much consolidation. That might, wrote Hunt, "create an unacceptable too big to fail scenario.”

The bigger headline from last February was a clear NCUA signal that it would not approve a proposed merger between Members United and Western Bridge and a reason cited was the worry about too big to fail.

So the question asked by many credit union executives is how can Alloya be in the mix for possibly buying Western Bridge? And how can Catalyst be there? What happened to too big to fail?

The NCUA is not talking about any of this. Its spokesperson, David Small, declined to respond to requests for clarification. Small also indicated that Hunt was unavailable for an interview.

But many in the corporate credit union world have much to say and an emerging consensus is that size has become a nonissue.

“Even if that acquisition of Western Bridge by Alloya goes through, the resulting corporate will be a fraction of how big corporates were just a few years ago,” said a senior executive who requested anonymity. The numbers back up this point of view.

Just a few years ago, Members United alone had 2,100 credit union members, making it the largest corporate by member count. Today it has 1,100, said Vice President of Marketing Victor Vrigian.

Western Bridge, at the last public count in late summer, had under 900 members (down from the 1,100 predecessor WesCorp had at its height, according to the recollection of its onetime communications chief Walt Laskos).

However, only 300 had agreed to capitalize United Resources, the new entity organizers attempted to create out of Western Bridge but failed to achieve critical mass. Nobody believes more than 500 will choose to put capital into another corporate and that will likely be a demand made by any corporate that buys Western Bridge, said an executive who is close to that process and requested anonymity.

Do the math and that would produce perhaps 1,600 members in Alloya after a Western Bridge purchase. That is much smaller than Members United was at its height.

At Catalyst, the current count of capitalizing members is 890. Noncapitalizing members, most of whom use a diminished range of services, add another 450. That would put the total member count of a Catalyst-Western Bridge merged entity at under 1,850, still significantly below the member count at Members United at its peak.

“You have to be honest. Corporates are not the size they once were and even if this acquisition goes through, they still won’t be,” said an executive who is close to the process. “Too big just is not a real worry anymore. I think NCUA has done the new math and seen that there is no real worry about systemic risk, as they used to say.”

Added credit union consultant Marvin Umholtz, “perhaps when NCUA warned about too big to fail, it underestimated the bad feelings toward corporates on the part of some natural person credit unions.” Because it underestimated the attrition, it overestimated the risks, added Umholtz.